To: Board of Directors, Sonoma County Water Agency
Department or Agency Name(s): Sonoma County Water Agency
Staff Name and Phone Number: Lynne Rosselli, 707-524-3771, Jake Spaulding 707-524-8373, Grant Davis 707-547-1911
Vote Requirement: Majority
Supervisorial District(s): Countywide
Title:
Title
Water Rates for Fiscal Year 2022/2023
End
Recommended Action:
Recommended action
Adopt a Resolution establishing Rates and Charges for the Sonoma County Water Agency’s Water Transmission System for Fiscal Year 2022/2023.
end
Executive Summary:
The Restructured Agreement for Water Supply (Restructured Agreement) between the Sonoma County Water Agency (Sonoma Water) and its eight retail water contractors requires that water rates be sufficient to cover the projected operation, maintenance, infrastructure, and debt service requirements for the next fiscal year. To meet these requirements, staff recommend a budget that results in a 6.06 percent rate increase for Santa Rosa Aqueduct customers, 6.16 percent rate increase for Petaluma Aqueduct customers, and a 6.52 percent increase for Sonoma Aqueduct customers.
The Fiscal Year 2022/2023 rate increase allows Sonoma Water to operate and maintain the Water Transmission System, implement projects required by the Russian River Biological Opinion, construct critical hazard mitigation infrastructure projects, and maintain a prudent reserve. The COVID-19 pandemic has had devastating impacts to many residents and businesses throughout our county and beyond. Sonoma Water is aware of the financial impacts that rising water rates can have during these difficult times and made a conscious effort to maintain the lowest rate increases possible in Fiscal Year 2021/2022 to soften those impacts as much as possible while continuing to operate and maintain the water transmission system in a safe and reliable manner.
Sonoma Water is proposing to issue 2022 Water Revenue Bonds to fund capital projects, and use grant revenue and fund balance to keep increases to a minimum in Fiscal Year 22/23 considering the continuing hardships posed by the pandemic. The proposed rate increase is necessary to invest in critical infrastructure improvements, deferred maintenance, drought related water reliability projects, and remain prepared for natural hazards.
The proposed rates will result in a 1 to 2 percent increase for households and businesses served by Sonoma Water’s contractors. Sonoma Water’s wholesale water rates are only a portion of the retailers’ overall costs, which include cost of operations and maintenance of their systems.
Discussion:
The Fiscal Year 2022/2023 budget provides appropriations to operate and maintain the Water Transmission System, implement projects required by the Russian River Biological Opinion, construct critical hazard mitigation infrastructure projects, pay debt service on outstanding bonds, and maintain a prudent reserve. Highlights of the budget include construction of three FEMA-funded hazard mitigation projects and other essential construction, including the Seismic Retrofit of Storage Tanks, Warm Springs Dam Hydroturbine retrofit, rehabilitation of three groundwater wells in the Santa Rosa Plain to increase water supply reliability during the drought, and Phase 4 of the Biological Opinion Dry Creek Habitat Enhancement Project. The budget also includes preliminary design of several additional hazard mitigation projects, cathodic protection upgrades along the Santa Rosa Aqueduct and Russian River-Cotati Intertie, initiation of a comprehensive storage tank maintenance program, and implementation of a robust water use efficiency program to message the importance of water conservation and address the impacts on water supply from a critically dry year and drought conditions.
Sonoma Water recognizes the COVID-19 pandemic impacted many residents, businesses, and our retail water contractors throughout our county and beyond. In response to the far-reaching financial hardships, Sonoma Water made a conscious effort to keep rate increases in Fiscal Year 2021/2022 at a minimum while continuing to maintain system reliability and public health and safety. Mitigation measures included using fund balance, bond revenue, and grants to the maximum extent possible, and realizing cost savings of $1.3 million by deferring construction and maintenance projects.
The COVID-19 pandemic continues to provide hardships and Sonoma Water made every effort to use revenue bonds, grants, and fund balance to keep increases to a minimum in Fiscal Year 2022/2023.
Staff recommend a budget that results in a 6.06 percent rate increase for Santa Rosa Aqueduct customers, 6.16 percent rate increase for Petaluma Aqueduct customers, and a 6.52 percent increase for Sonoma Aqueduct customers. The proposed rate increase is necessary to invest in critical infrastructure improvements and deferred maintenance, implement drought related water reliability projects, and remain prepared for natural hazards. Sonoma Water optimized the use of other sources of revenue to develop a budget that is reasonable, responsible, and fair, and that softens the rate impact to the 600,000 customers Sonoma Water serves.
For purposes of establishing the charges for the next fiscal year, the Restructured Agreement requires Sonoma Water to assume that the quantity of water to be delivered from each aqueduct of the Water Transmission System will be the same amount of water delivered during the 12 months preceding establishment of rates, or the average annual amount of water delivered during the preceding 36 months, whichever is less. The three-year annual average deliveries were 45,748 acre-feet. The quantity of water delivered during the preceding 12 months was 45,788 acre-feet. The water rates calculated for Fiscal Year 2022/2023 utilizes 45,748 acre-feet as a delivery estimate. This represents a 0.75% decrease over Fiscal Year 2021/2022.
An Executive Summary of the Water Transmission Budget, including projected revenues, expenses, rates and capital projects, is provided in Attachment 1 - ‘Water Transmission Budget Executive Summary’. The recommended increase in total charges from the current fiscal year are identified in Attachment 2. Budget summaries are included in Attachment 3, including the projected Operations and Maintenance Fund revenues and expenses for Fiscal Year 2022/2023, and projected Fiscal Year 2022/2023 ending fund balances for various other funds (“Water Rate Calculations and Budget Summaries”).
Attachment 4 - ‘Fiscal Year 2022/2023 Revenue Summary Chart’ delineates projected water use and rate changes by Sonoma Water customers.
The Water Transmission System Operation and Maintenance charge, and charges for water management planning, watershed management and planning activities, recycled water/local supply projects, and water conservation/water use efficiency projects, and proposed rate increases are as follows:
|
Funds |
Fiscal Year 2022/2023 Rate in Dollars per Acre-Foot |
Increase (Decrease) from Fiscal Year 2021/2022 in Dollars |
Percent Change |
Description |
|
Operations and Management |
$816.03 |
$130.11 |
18.97% |
Fiscal Year 2021/2022 rate is $685.92. Fiscal Year 2022/2023 budget Increase is attributable to an increase in maintenance projects (cathodic protection, tank recoats, pump and valve replacements, chlorine and pH improvement projects, SCADA upgrades), studies (Regional Water Supply Resiliency, Watershed and Water Quality Seismic Mitigation Studies, Local Hazard Mitigation Plan), and emergency inventory procurement. |
|
Water Management Planning |
$0.20 |
$0.20 |
- |
Fiscal Year 2021/2022 rate is $0.00. Fiscal Year 2022/2023 Budget increase is due to submittal of the Fiscal Year 2021 Urban Water Management Plan in Fiscal Year 2020/2021. Budget request is for follow-up meetings, responding to State Department of Water Resources and contractor requests, tracking regulatory compliance changes, and coordinating with climate adaption strategic planning efforts. |
|
Watershed Planning and Restoration |
$32.70 |
($99.96) |
-75.35% |
Fiscal Year 2021/2022 rate is $132.66. Decrease due to use of fund balance as Sonoma Water continues to be credited by the U.S. Army Corps for expenditure of cost share. Work continues for design and right-of-way expenditures for Dry Creek Habitat Enhancement phases 5 and 6, construction of phases 4 and 5, and other required biological opinion activities. Up to $7,500,000 in fund balance is being used for design and construction costs to smooth rate impact. |
|
Recycled Water and Local Supply |
$0.50 |
($0.43) |
-45.94% |
Fiscal Year 2021/2022 rate is $0.93. Past rate increases have accumulated sufficient fund balance for this fund. Expenditures are for Sonoma Water's share of Groundwater Sustainability Agencies' budgets. |
|
Water Conservation |
$47.50 |
$3.06 |
6.89% |
Fiscal Year 2021/2022 rate is $44.44. Rate increase is for program needs including Proposition 1 Bay Area grant program and USBR Water Use Efficiency Grant Program. Increase will be used to implement water use efficiency, outreach and education projects, address drought conditions and ongoing water conservation needs, and pass-through grant funds to water contractors and other partners. |
|
Storage Facilities Bonds |
$26.55 |
$3.43 |
14.84% |
Fiscal Year 2021/2022 rate is $23.12. Rate is based on revenue requirement for debt service divided by water deliveries. Rate increase is due to decrease in budgeted water deliveries, and issuance of 2022 Bonds for capital expenditure needs in Storage Facilities. |
|
Common Facilities Bonds |
$126.56 |
$33.17 |
35.51% |
Fiscal Year 2021/2022 rate is $93.39. Rate is based on revenue requirement for debt service divided by water deliveries. Rate increase is due to decrease in budgeted water deliveries, and issuance of 2022 Bonds for capital expenditure needs in Common Facilities. |
|
Sonoma Aqueduct Bonds |
$131.87 |
$5.15 |
4.06% |
Fiscal Year 2021/2022 rate is $126.72. Sonoma Aqueduct pays an additional revenue bond charge for the bonds associated with the Eldridge-Madrone Pipeline Project. Rate is based on revenue requirement for debt service divided by water deliveries. Rate increase is due to decrease in budgeted water deliveries. |
|
Santa Rosa Aqueduct Capital Fund |
$11.00 |
($9.00) |
-45.00% |
Fiscal Year 2021/2022 rate is $20. A discretionary capital charge is added by the water contractors to fund hazard mitigation projects, build fund balance for future aqueduct capital projects, and to provide rate stabilization capacity. Santa Rosa Aqueduct water contractors elected to reduce the capital charge to reduce the overall Fiscal Year 2022/2023 rate increase. |
|
Petaluma Aqueduct Capital Fund |
$12.00 |
($8.00) |
-40.00% |
Fiscal Year 2021/2022 rate is $20. A discretionary capital charge is added by the water contractors to fund hazard mitigation projects, build fund balance for future aqueduct capital projects, and to provide rate stabilization capacity. Petaluma Aqueduct water contractors elected to reduce the capital charge to reduce the overall Fiscal Year 2022/2023 rate increase. |
|
Sonoma Aqueduct Capital Fund |
$38.00 |
$0.00 |
0.00% |
Fiscal Year 2021/2022 rate is $38. A discretionary capital charge is added by the water contractors to fund hazard mitigation projects, build fund balance for future aqueduct capital projects, and to provide rate stabilization capacity. |
Over the past ten years, Sonoma Water’s customers have benefitted from more than $22 million in awarded grant funds that are used to offset expenses. The majority of funds have been for hazard mitigation and water supply reliability projects including the Santa Rosa Well Resiliency Project that received $6.9 million from the Department of Water Resources. The majority of the use of fund balance will be expended in the Common Facilities Capital Fund where construction costs budgeted in prior years have accumulated due to FEMA’s environmental review delays.
Under the Restructured Agreement, Sonoma Water is required to submit a preliminary water transmission system budget to its Water Contractors by February 1 of each year. The preliminary budget for Fiscal Year 2022/2023 was sent to the water contractors on January 21, 2022. Sonoma Water met twice with Water Contractor staff to develop working drafts of the budget, and on March 7, 2022, the Water Contractor’s Technical Advisory Committee recommended approval of the draft budget. In March 2022, Sonoma Water staff made virtual budget presentations and answered questions for some of the Water Contractor’s elected bodies. On April 4, 2022, the Water Contractor’s Water Advisory Committee members all recommended adoption of the proposed budget by Sonoma Water’s Board of Directors. Pursuant to Section 4.1 of the Restructured Agreement, the budget must be adopted by Sonoma Water’s Board of Directors on or before April 30.
The Fiscal Year 2022/2023 bond and loan charges are summarized in Attachment 5.
Prior Board Actions:
4/20/21: Board established water rates and charges for Sonoma Water’s water transmission system for Fiscal Year 2021/2022.
Fiscal Summary
|
Expenditures |
FY 21-22 Adopted |
FY22-23 Projected |
FY 23-24 Projected |
|
Budgeted Expenses |
|
$72,100,000 |
|
|
Additional Appropriation Requested |
|
|
|
|
Total Expenditures |
|
$72,100,000 |
|
|
Funding Sources |
|
|
|
|
General Fund/WA GF |
|
|
|
|
State/Federal |
|
$4,896,000 |
|
|
Fees/Other |
|
$57,465,000 |
|
|
Use of Fund Balance |
|
$9,739,000 |
|
|
Contingencies |
|
|
|
|
Total Sources |
|
$72,100,000 |
|
Narrative Explanation of Fiscal Impacts:
There is no fiscal impact in Fiscal Year 2021/2022 as the proposed rates become effective in Fiscal Year 2022/2023. Revenues from these charges pay for operations and maintenance of the water transmission system. Sonoma Water anticipates revenues from water sales of $49.5 million, $1.26 million in power sales, contributions, and interest and investment income, use of bond proceeds of up to $6.7 million, $4.9 million in grant funds, and $9.7 million in use of fund balance. Revenue and expenditures for Fiscal Year 2023/2024 will be determined based on water deliveries in calendar year 2022.
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Staffing Impacts: |
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Position Title (Payroll Classification) |
Monthly Salary Range (A-I Step) |
Additions (Number) |
Deletions (Number) |
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Narrative Explanation of Staffing Impacts (If Required):
None.
Attachments:
Resolution
Attachment 1 FY 22/23 Water Transmission Budget
Attachment 2 FY 22/23 Water Charges Per Acre-Foot
Attachment 3 FY 22/23 Water Rates Calculation and Budget Summaries
Attachment 4 FY 23/23 Revenue Summary
Attachment 5 FY 22/23 Debt Service Charges
Related Items “On File” with the Clerk of the Board:
None.